Link-o-rama

1. Buckle up your safety belt, take good care of yourself, we pay yours bills. (Sung to the tune of Button Up Your Overcoat.)
2. “Researchers may be poorer teachers to low-ability students and thus better screeners,” the authors write.
3. I love you.
4. How men are doing.
5. How women are doing.
6. The efficiency gains from marriage are well known. It’s also true that for most couples they grow over time.

People respond to incentives, Orthodox edition

BBC:

At the end of 2007, in a move to reverse the Caucasian country's dwindling birth figures, the head of the Georgian Orthodox Church, Patriarch Ilia II, came up with an incentive. He promised to personally baptise any baby born to parents of more than two children.

There was only one catch: the baby had to be born after the initiative was launched.

The results are, in the words of the Georgian Orthodox Church, "a miracle".

The country's birth rate increased by nearly 20% during 2008 - a rate four times faster than the previous year.

Many parents say they took the decision to have another child on the basis of the Patriarch's incentive.
...
The next baptism is scheduled for early April, when thousands of mums, dads and their children will cram into Tbilisi's biggest church, the Sameba Cathedral. The babies will be briefly dipped into a gigantic inflatable font after receiving a blessing from his Holiness, Ilia II.

London goes after the mushroom

Let's hope she doesn't lead the child astray.

The picture accompanies this story from The Telegraph (UK):

Fat people will be offered cash incentives to lose weight and take regular exercise under a radical Government strategy announced yesterday to tackle the obesity epidemic.

Employers will be encouraged to set up competitions with money, vouchers and other rewards for people who give up junk food in favour of healthy eating and living. Those losing the most weight would earn the biggest prizes.

Ministers believe that by giving people incentives to do something about their weight now, it will help avoid larger costs associated with treating cancer, heart disease and diabetes caused by obesity. Similar schemes have worked well in America and British medical insurance companies already offer discounts for people who go to the gym regularly.

People respond to incentives. But be careful about the design. What's to stop me from bulking up first and then entering the competition to lose the most weight?

Zimbaweans flush with cash

It's all here.

Even a ZWD 1,000 note or two is a cost effective alternative to a sheet of toilet paper.

All new meaning to pay toilets

Don't pay; get paid:

"We're motivating people to know the value of their urine," said Marathi Subburaman, who came up with the novel idea. "The urine that is collected goes into fields for paddy crops, and of course the feces becomes good compost in a matter of months."

Via Marginal Revolution.

Demand curves: They slope downwards, don't they?

Read, Carpe Diem.

While you're there, also take a look at his post Back to Basics: Suddenly, A Bright Future for Old-Economy U.S. Firms in Industries Like Steel and Mining.

Putting a price on water

DEWA (Dubai Electric and Water Authority) is raising rates on water consumption by non-citizens.

Gulf News reports:

Water and electricity prices in Dubai have been revised to encourage big consumers to use less by paying more.

Currently residents pay 3 fils per gallon and will continue to do so as long they do not use more than 6,000 gallons, the price will then go up to 3.5 fils per gallon, and even 4 fils per gallon for consumers who sap more than 12,001 gallons from the tap.

Electricity fees will range from 20 fils to 33 fils per kilowatt hour depending if usage exceeds 2,000 or 10,001 kilowatt hours for residents and industries respectively.

Emiratis are exempt from the new rates.

Emphasis added.

If the point is to encourage conservation, then it does not make sense economically to exempt a group that is just as likely to include big users.

This story has stirred considerable debate at the UAE community blog.

UPDATE: 27 Feb - Sharjah moves to "rationalize electricity and water consumption." No word on whether some customers will be exempt from paying their bills.

When can welfare benefits and immigration be separated?

Demographic imbalance continues to be a sensitive issue in the GCC:

"This region will not remain Arab-Islamic in the presence of millions of Asians here. I do not exaggerate when I say that we will soon see a Gulf minister or Member of Parliament from the Indian subcontinent," [Bahrain's Labour minister Majeed Al Alawi] said in an interview published on Sunday in Asharq Al Aswat newspaper.

Al Alawi lashed out at the lazy character of Gulf nationals that has made them almost fully dependent on imported labour even for the simplest tasks and blasted the Gulf business community for their uncontrollable greed, claiming that they were driven "only by financial interests and without any regard for the formidable damage caused by foreign workers."

The minister, a leading opposition figure who was given the labour portfolio in 2002, has now failed twice to have the GCC leaders endorse a proposal for a residency cap to limit the growing influence of the expatriate communities.

I would not describe Gulf nationals as having a "lazy character." I would say that they respond to incentives, and that in many countries in the Gulf nationals benefit from the welfare state that the oil revenues of those countries can support.

By contrast, the ex pats in the GCC have a reputation for working hard. But that is because their income is tied to their productivity; they do not receive the benefits of the welfare state. Arguably - because the GCC is so dependent on foreign labor - it has the most open immigration policy in the world. The economist Milton Friedman argued that open immigration was incompatible with a welfare state. Here's what Lant Pritchett had to say about that in an interview with Reason:

Reason: Milton Friedman has pointed out that open borders are incompatible with the welfare state.

Pritchett: I would have thought Milton Friedman would have taken that as an argument for open borders.

The free mobility of labor is incompatible with the welfare state if every person who is physically present in a location to perform an economic service automatically comes into the same set of welfare benefits as a local. That needn’t be the case.

This is what liberal democracies find hard. But it’s not impossible. You have to confront the injustice of the world and say this person is better off even without the welfare benefits, and this process is good for the world.

Reason: You then create a division between first- and second-class citizens. Isn’t that worrisome?

Pritchett: The world now is divided into first-class citizens of the world and fifth-class citizens of the world. The idea that we wouldn’t help a peasant trying to eke out a living on a side of a mountain in Nepal by letting him work in the United States, just because we have to, if he comes to the United States, endow him with all the rights of U.S. citizens—I think that moral calculus is backward.

So the first answer is: Milton Friedman is wrong. It’s not incompatible with a welfare state; it’s incompatible with a welfare state that doesn’t differentiate between people within its territory. Singapore manages to maintain an enormously high level of benefits for its citizens with massive mobility. Kuwait has one of the highest immigrant populations in the world, and you can’t ask for a more cradle-to-grave welfare state than what Kuwait gives its citizens. So it’s obviously possible to maintain whatever level of welfare state you want and have whatever level of labor mobility you want, as long as you’re willing to separate the issues.

In the GCC it has been politically feasible to admit immigrants and deny them welfare benefits. Would it be politically feasible in the U.S. to separate immigration from access to welfare benefits? Not all Americans would agree, but I suspect the majority believe that if someone is admitted to the country then they should have access to most if not all of the public benefits that citizens enjoy. At the same time Americans do not support open immigration. Thus, most Americans - although they may not recognize it - leave most would-be immigrants worse off than if they could accept second-class residency.

Thanks to freeexchange for the link.

Update - Arabian Business: "Al Aswat warned that the presence of foreign workers in the Gulf was a greater threat to the region than the fallout of a nuclear bomb or an Israeli attack."

The Economy Makes Us Fat

That headline is the one Newsweek uses, and it's the subtitle of a new book. But actually that's not accurate. Unless we're being force fed, overeatting is a choice. The question is, why are we overeatting? From the article:

Is a fatter population an inevitable consequence of an advanced economy? Health economist Eric Finkelstein, co-author of the new book "The Fattening of America" (John Wiley), thinks so. Thanks to economic advances, he argues, we spend more time on our butts—at the computer, in front of the TV, in the car—than our parents and grandparents did, and we spend less time in the kitchen making healthful meals or outdoors burning calories. And everywhere we go we're tempted by a growing array of cheap, high-calorie, fat- and sugar-laden treats. The result: nearly two-thirds of American adults now qualify as overweight or obese. [A similar proportion of the poor Americans are also obese.]

From the interview it's clear Finkelstein and I agree individuals are responsible for their own obesity, not the economy:

Worse choices?
Not from an economist's perspective. We're fatter, but that does not mean that we are worse off. We could do without the low-cost food or the new technology, but most Americans would prefer not to. The reason is that the costs of being thin, in terms of what they would have to forgo, have just gotten so high that people are saying "I'd rather be fat" than make the increasingly difficult sacrifices necessary to be thin.

What about the costs to our health of carrying around a lot of extra weight?
Our research suggests that, even with this knowledge, many people will still choose to be overweight. We found that overweight individuals are aware that their excess weight makes them more likely to get diabetes, cancer, and heart disease.
...
Employers could adapt some of those ideas to combating obesity in the workplace.
Employers should use the types of strategies that are profit-maximizing. After all, that is what most [companies] are in business to do. I would subsidize healthy food in the cafeteria, maybe even have a fitness center. It's a nice perk and a great way to attract young, healthy workers.

But you don't think implementing weight-loss programs makes sense economically?
In order to be a cost-saving program, employees would have to lose enough weight, keep it off long enough and stay with the company long enough so that the reduction in health-related costs would be borne by the company. In reality, people change jobs every five years on average, so these programs are unlikely to pay off for most firms.

People do want to lose weight and that's why they're willing to pay for diet advice, or pills or procedures. Some economists are even hoping to make money with the economics diet.

And here is a Freakonomics post on the economics of obesity.

When it pays to have a backup car...

...And you can afford it. Gulf News that traffic fines are not high enough to deter some people. It's not a fine, it's the price of driving like a nut:

Police have abolished a system under which errant motorists could pay a fee to avoid confiscation of their car - because it was not enough of a deterrent to bad driving.

It was found that the majority of motorists who paid money instead of having their vehicles confiscated then went on to repeat the offences.

Under the previous system, which was implemented several months ago, drivers could pay Dh100 per day for each day of the confiscation period. They could choose to pay for all or a number of days.

The confiscation period is from one week to three months, depending on the severity of the offence. However, motorists who committed dangerous offences did not have the option of paying to avoid having their vehicles impounded.

Lieutenant General Dahi Khalfan Tamim, Chief of Dubai Police, said the system was changed because it did not reduce the number of traffic offences.

Woman too large for New Zealand

The Guardian

New Zealand has added another cruel cut to the myriad indignities visited upon those of larger girth: anyone with a dangerously high body mass index (BMI) is likely to be denied permission to emigrate there. Richie Trezise, 35, a Welsh submarine cable specialist, was initially rejected because of a BMI of 42 (25 or higher is regarded as overweight); he lost weight, but his wife Rowan, 33, has not found it so easy. For months she has tried to slim down enough to join her husband; if she can't do it by Christmas, he will have to give up his job and come home.

The government's reasoning is simple: it will take only immigrants of an "acceptable standard of health", ie those "unlikely to impose significant costs or demands on New Zealand's health or special education services" (a requirement that raises the even more controversial possibility of applicants being turned down for mental health reasons). Obese people are more likely to suffer from heart disease, diabetes, strokes and high blood pressure; ergo, obese people are not allowed.

The Sun has pictures.

New Zealand can't be blamed for Mrs. Trezise's weight. It can be blamed for causing its own citizens to be overweight. Its healthcare policy has weakened the incentive to stay fit.

Evidence? Obesity is an epidemic in New Zealand. As one news source points out,

The country's health care system cannot afford to open its doors to overweight immigrants, a spokesman for New Zealand's Fight the Obesity Epidemic explained to the Daily Mail.

Over half of New Zealand adults and nearly one-third of New Zealand children are already overweight or obese, according to the group. Those figures are expected to rise, as are the health problems associated with being overweight, such as high blood pressure and diabetes.

The UAE does not limit immigrants by weight, but then it doesn't let them participate in the health plan for citizens. Obesity among UAE nationals is a considered a social problem and is related to the high rate of diabetes.

Scottish roads too safe :: EclectEcon

White lines will be removed, or, rather, not repainted.

Read about the natural experiment that supports this policy in this story in the Scotsman:

Although white centre lines can greatly assist drivers on major unlit rural roads, research in Wiltshire has shown that when white centre lines on lit roads within a 30mph speed limit were not replaced, traffic speeds and accidents were both reduced. It is, therefore, proposed that a similar experimental policy should be adopted in Aberdeenshire when roads with street lighting within 30mph speed limits are resurfaced or surface dressed.

Thanks to EclectEcon for the link. Read his analysis here.

Quote of the day

Greg Mankiw:

Given how overweight we Americans are compared with citizens of other countries, it is amazing that we live as long as we do. If we further standardized life expectancy by body-mass index, the U.S. lead in health outcomes would likely grow even larger.

Mankiw argues convincingly that it's not the fault of the US health care system that Americans are so unhealthy. See more here and here.

Mankiw points to this article in the Washington Post. An extract:

I was talking to Barry Nalebuff, a professor at Yale University and one the country's top game-theory economists. He has studied weight-loss incentives extensively. When I told him what my wife was paying me, he said: "It's not going to work. It's not big enough. Not even close." He had another idea: Take a picture of myself in a Speedo, and if I don't lose weight, he gets to hang the picture in my office. For extra motivation, he suggested I procure a similar picture of my wife, theorizing (correctly) that she wouldn't want my colleagues to see that much of her. "Then you'll really lose the weight," he said. He has done two nationally televised studies showing that this strategy works.

Nalebuff thinks the weight loss will happen only if there is something of importance being risked. When I told him that my wife might kill me under his proposed arrangement -- thereby defeating the purpose of me losing weight -- he suggested I enter into a contract in which I agree to pay him if I don't drop some pounds. "As much as people don't like to lose money, what they really don't like to lose is their own money," he said.

In fact, some of his Yale colleagues are in the final stages of launching a business based on this very concept.

Perhaps they could open a branch in the UAE. According to the Gulf News Treatment of diabetes is a big drain on national healthcare budget. Diabetes is caused by diet. Here's where healthcare policy comes in. When your government takes care of you if you don't take care of yourself, then incentives are screwed up. But it's very difficult for the government to refuse to take care of you, especially if it's a wealthy nation. Perhaps the UAE government should commit to giving a few billion dollars away to Darfur if it fails to stick to a policy of refusing to take care of people who don't take care of themselves.

Headline: "Water consumption to be cut in half"

Gulf News

Majid Al Mansouri, Secretary general of the Environment Agency Abu Dhabi, said Abu Dhabi Government will reduce water consumption rate from 550 gallons per head per day to 250 gallons per head over the next five years.

Let's examine the price charged for tap water. It's priced below its cost, and hence the incentive to economize on its use is too weak. In some areas water usage is not metered, or if it is metered it is not billed or bills are forgiven.

People do respond to incentives, if the incentives are in place.

If at first you don't succeed...

... try, try again.

It's an ongoing game in Abu Dhabi between the rent control authority and the building owners. Here's another episode in the saga from Gulf News

"Changing the business from residential building into hotel apartments is not a legal ground to evict tenants," said Mohammad Rashid Al Hameli, chairman of the Abu Dhabi Rental Disputes Resolution Committee.

Al Hameli said under the law, landlords cannot ask tenants to vacate unless in specific cases, including approved demolishing, for personal use, tenant's failure to pay the rent, subletting the property without the approval of the landlord or violating public norms.
...
Al Hameli said tenants should not obey any eviction order issued by landlords or any authority unless the order is approved by the Rental Disputes Resolution Committee.

The take away message to investors: If you build anything new call it a hotel, not a residence.

The UAE welfare state

Bloomberg:

All 800,000 Emirati citizens get free education and health care, and subsidized utilities. Emirati men can claim free land and no-interest loans to build homes. Other benefits include a $19,000 payment toward wedding costs.

The handouts, based on traditions of royal patronage dating back centuries to Bedouin society, now discourage citizens from working, academics say. Expatriates outnumber Emiratis and dominate fields such as banking, law and technology. The quandary for Sheikh Mohammed is how to reduce the culture of dependence without alienating his people.

``The relationship between work and income is broken,'' says Kenneth Wilson, Dubai-based director of the Economic and Policy Research Unit at Zayed University, a school for Emirati women that opened in 1998. ``That's unlikely to change until the government starts trying to give incentives to work in the private or corporate sector.''

The phrase "culture of dependency" bothers me. Suppose I inherited stock and could live very comfortably off of the dividends if I chose. Would you say I was dependent on the stock? And does it create an incentive for me to stop working? No; Bill Gates is still working plenty hard.

The UAE is a very rich country and it is only natural that the wealth owned by the government/rulers is shared with the citizens. Where economists begin to worry is when the size of the transfers creates adverse incentives. For example, suppose you get more from the government if you earn less. This cuts your incentive to work. Or suppose underpricing of utilities causes you to waste water and electricity -- there are more efficient ways to make transfers. Or suppose that government jobs are require little effort and pay much more than the private sector -- where's the incentive to choose the private sector rather than engaging in rent-seeking activities (wasta) to get a government job? Or suppose you are guaranteed a government job as long as you have any college degree -- where is the incentive to excel in college?

It's not the size of the transfers. It's their design.

The Bloomberg article goes on to suggest that the transfers buy political allegiance. If that is true then the trick to solving the Emiratization problem will be to reform the welfare system without cutting the benefits to most citizens.

Sweet!

As the increasing demand for ethanol drives up sugar prices a major tomato producer is checking out sweeter tomatoes.

The Wall Street Journal ($) reports:

With prices for corn syrup and other ketchup ingredients going up faster than Heinz can raise its own prices, the Pittsburgh-based condiment king is overhauling its breeding operations to help compensate. Heinz is developing sweeter tomatoes that could cut down on its need for corn syrup, as well as varieties that resist disease, stay fresh longer and produce a thicker consistency. "The new seed work is all about creating the perfect tomato," says Mr. Ozminkowski, the company's manager of agriculture research.

The ethanol industry's consumption of corn is just one factor driving up its price. Rising global demand for meat is also boosting prices, since corn is a key ingredient of animal feed.
...
Heinz faces risks any time it changes the tomatoes in its ketchup, which could affect the balance of flavors customers are used to. ... Heinz officials say their ketchup undergoes rigorous testing before being introduced to the marketplace and that consumers won't be able to detect any difference as the company gradually uses sweeter tomatoes and less corn syrup in its ketchup.

Another example of insourcing.

Vitamin W

Arab News out of Saudi of Arabia has a regular section "Local Press" which I find useful to follow. It gives some insight into what Arab language papers in KSA are saying.

Today there are two articles about wasta. The first is here and is titled "Graduates with 101%GPA" and first appeared in Al-Riyadh. It says in part,

Local newspapers reported that three sets of twins had graduated from high school with Grade Point Averages (GPA) of 96.97 percent, 97.33 percent and 99.55 percent respectively. Despite these impressive marks, they all failed to get admitted to a university. At the same time, local newspapers also joyfully announced that there were either 145,000 or 245,000 students enrolled at universities in the Kingdom.

In order to be somewhat closer to accuracy, we will rely on the smaller figure of 145,000 students being admitted to university. This in itself is a huge number and the lucky students must have surely obtained 100 percent GPAs, because the ones who managed to score 99.55 percent failed to get accepted by a university.

What I wonder is if it is possible for a student to have a GPA of 101 percent. I guess it is if one takes advantage of a “wasta,” which proves that the admission system of our universities, which is based on students’ total high school grades, is useless and unfair.

Then there is this story entitled "We Need More Vitamin 'W'." It first appeared in Al-Eqtisadiah. An extract:

Islam is against the concept of bribes, and wasta is not something different to bribery. Both accomplish the same — the giving of something to someone illegally and unjustly. Wasta has become part of our daily life and is something used in the slightest and smallest of tasks.
...
Vitamin “W” is essential these days to successfully enroll at universities and colleges, and to secure jobs. This magical vitamin, which is derived from the concept of “wasta,” is something that is highly coveted in the Kingdom, where jobs and university places are scarce.

Vitamin W, which could also be described as “mediation,” is basically a method of depriving a youngster from his or her right and handing it to another undeserving individual.

Patronage destroys incentives to be productive and add to society's wealth, and creates bad incentives to direct effort to rearranging the slice of the pie you get. More meritocracy, please.

The high cost of free parking

The Boston Globe:

Thanks to the work of UCLA urban planning professor Donald Shoup, we now know that the low meter rates lead to congestion, unnecessary fuel consumption, and additional pollution. It also allows parking entrepreneurs to make 20 bucks (or more) for the same 120 square feet of asphalt that the city is practically giving away.
In his recent book, "The High Cost of Free Parking," Shoup claims that curbside parking is a valuable resource that cities squander by "renting" for less than market value. The most obvious consequence is the lost revenue. If motorists are willing to pay $20 to park in a lot for a Red Sox game, why shouldn't the city charge the same amount, or at least something closer to the private rate than $1 an hour?

I'm not so sure. In Sharjah I get the feeling that more drivers would park in the driving lanes. People do respond to incentives. Not all drivers, but some who feel they are above the law. If there's no enforcement and no shame that is what will happen.

Nose Job Nation

The surgeons there have really worked down the learning curve. For my taste, it's a shame.

But people respond to incentives. If you're constrained to cover the rest of your body, you work on your face.